Ethanol makers search for cheaper raw material

Ethanol plants are running at full throttle. Profits are high. The business of turning corn into alcohol has never been better.

"In the United States, corn is king," says Bill Lee. "It's a nice little nugget of energy."

Bill Lee is general manager of Chippewa Valley Ethanol in Benson, in western Minnesota. Nearly 1,000 farmers and investors joined together to build the company.

"We've been in business a little over 10 years now. We started as a 15 million gallon-a-year facility, and we're now a 45 million gallon-a-year facility," says Lee.

The growth of Chippewa Valley is something that's happening all over the nation. Dozens of new ethanol plants are under construction. Lee says one big factor driving the boom is the uncertainty over the dependability of foreign oil.

"Alternative energy is a way for us to help offset that," says Lee. "It's just crazy to continue on the path that we are on."

CAN CORN KEEP UP WITH DEMAND?

U.S. ethanol production has increased 15 percent or more annually in recent years, and that pace could get even higher. Last year's federal energy bill sets a goal of 7.5 billon gallons of ethanol by 2012, nearly double current production.

In the United States, corn is king. It's a nice little nugget of energy.

Most of that will be made from corn. Still, there are signs that a change is underway. The University of Minnesota's Doug Tiffany says plant fiber could one day overtake corn as ethanol's principal raw material.

"I can see a time when higher corn prices, as well as higher natural gas prices, would definitely cause the transition over to cellulosic ethanol," says Tiffany.

The higher prices raise the cost of making ethanol. The corn scenario is especially important. Corn accounts for roughly half the expense of making ethanol. As more plants are built, the increased grain demand could strain supplies.

In response, corn prices are likely to go up. That could make corn-based ethanol unprofitable. If that happens, producers will move to a cheaper raw material. The most likely candidate is plant fiber.

FIBER-BASED ETHANOL WAITING IN THE WINGS

At least three ethanol plants using fiber as a raw material are in the planning stages in the U.S. Tiffany says if the operations succeed, they could trigger rapid growth in the industry. That's because they'll attract an important group of people -- investors.

"These will really be operating in a fashion where people will feel comfortable saying, 'By golly, this really works,'" says Tiffany. "And they'll be able to show these to bankers at this point, and they'll be able to understand, 'I think this will work.'"

One of the leaders in the cellulose ethanol industry is a Canadian company called Iogen Corp. Iogen is planning to construct the world's first commercial-sized cellulose ethanol plant.

Iogen Executive Vice President Jeff Passmore says the company wants to build the plant in Idaho. He says sugar will be extracted from barley and wheat straw, then fermented into ethanol.

Iogen has a demonstration plant running in Canada using this technology. The company's progress is attracting money.

"Shell did a global search, and concluded that Iogen was the leader and the one that they wanted to partner with. So Royal Dutch Shell is an investor and partner with Iogen," says Passmore. "Then more recently back in February, Goldman Sachs, the Wall Street investment company, took an investment in Iogen."

Passmore says the best case for this new kind of ethanol is found in U.S. energy goals. The Department of Energy wants cars and trucks to burn significantly more renewable fuels, mainly ethanol, by 2030. Currently ethanol makes up about 2 pecent of the nation's gasoline supply. The energy department wants to increase that figure to 30 percent.

The nation doesn't grow enough corn to meet that goal. Besides, much of the crop is needed for food and other uses. Iogen's Passmore says at most corn might account for 12-15 billion gallons of the ethanol goal.

"Where's the other 30 billion gallons going to come from? Well, it's going to have to come from cellulose, if you're talking about getting numbers in the neighborhood of a 40, 50 or 60 billion gallon total to replace at least 30 percent of current gasoline consumption in the U.S.," says Passmore.

IT'S MORE EXPENSIVE

Turning wheat straw or corn stalks into ethanol requires some relatively expensive facilities. The production plant alone is three times the cost of a corn ethanol operation.

That's because extracting sugar from plant fiber is more complicated than the corn process. It takes more storage tanks and pipes. Passmore says Iogen's Idaho plant will cover that cost gap with efficiency.

"You're going to be making ethanol but you're also going to be making energy like power and so on to help run the plant and you're going to be making some other high value added co-products like fertilizers and acidic acids and stuff like that," says Passmore. "And that's the way in which you're going to be able to make cellulose ethanol cost-competitive with grain-based ethanol."

Cellulose ethanol is getting so much attention it seems at times like a sure thing. But political and economic factors could change the optimistic outlook. World tensions could ease, slackening the drive for home-grown fuel.

Higher corn prices are expected to diminish grain ethanol's profitability, but so far that hasn't happened. Corn prices recently have declined, thanks to another bumper crop. Most significantly, ethanol plants could become efficient enough to make fiber operations unprofitable.

CORN AND CELLULOSE SIDE BY SIDE

At the Chippewa Valley plant in Benson, General Manager Bill Lee says the company is always trying to get better. He says a big project now is for Chippewa Valley to produce its own energy to run the plant.

"We would like to displace almost all of the natural gas we're using with biomass energy," says Lee. "And the way we are going about that is installing gasification technology here at our plant. That we can convert biomaterials like wood or crop residues, convert these materials into energy to replace natural gas."

The step is both practical and visionary. It promises to lower energy costs and increase profits. It'll also give the company experience in gathering and transporting crop residue. That knowledge will be valuable if the company decides to try cellulose production.

For ethanol insiders like Bill Lee, that's a likely scenario. Ethanol companies may develop a plant fiber operation side by side with their corn-based stills.

If that happens, the nation's future renewable energy production may closely resemble what's going on today. Ethanol plants scattered across the countryside, many owned by farmers. The change will be that instead of corn only, plant material will also be used to meet the nation's ever increasing fuel demands.

Gallery

Fullscreen SlideshowPrevious Slide

1 of 1

Next Slide